Markets: A Rigorous Course

M02 · Problem 4 ★ Check

Mean versus median

Let STS_T follow GBM with μ=11%\mu = 11\% and σ=20%\sigma = 20\%. (a) Compute P(ST<E[ST])P(S_T < E[S_T]) for T=10T = 10. (b) Compute P(ST<S0)P(S_T < S_0) for T=1,10,30T = 1, 10, 30. (c) A mutual-fund distributor shows a client the expected corpus S0eμTS_0 e^{\mu T}. What fraction of outcomes falls short of it at T=10T = 10?

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